Friday, October 10, 2008

Conservatives flailing, suddenly backstopping the banks

Here's the real news today, not some silly interview with Dion that Harper is peddling: "Ottawa admits it must act on the economy." The real news is the Conservative scrambling to deal with the global financial crisis that continues to tie them in knots.

See, they've been hamstrung by strong leader Steve's everything-is-fine-go-shopping-in-the-stock-markets shtick. Now when the banks are facing tight international liquidity situations, and are pressuring the government to do something, anything...well, it's all political calculation that's going on in Conservative land. After all, how can Steve act when he's been saying everything's hunky dory? See what happens when you play politics on every issue you encounter? So today we read that yes, indeedy, there's a plan in the works to assist Canadian banks:

The federal government is moving to backstop the Canadian banks' capacity to lend money in an acknowledgment that not even the country's sturdy banking system is immune to the global financial crisis.

A plan originally earmarked for Friday morning would see the government assume some mortgages currently held by the banks by giving them to the Canadian Mortgage and Housing Corp., a Crown corporation. In turn, the banks might receive CMHC paper – possibly bonds – against which they could use as collateral for their own loans from other banks.

Brute force reality is hitting Steve and Deficit Jim on the head like a two by four. Yet any steps they may take are being politicized due to the proximity of the election out of concern for the Conservatives' electoral fortunes:

Prime Minister Stephen Harper, Finance Minister Jim Flaherty and the banks say no bailout is on the table and the plan falls short of an intervention, but sources told The Globe and Mail Ottawa now recognizes the fast-changing economic landscape requires action to help the banks access cheaper funds to fuel lending.

With the double whammy of the last days of an election combining with the global economic slowdown, the federal government and senior bank executives are hypersensitive. The Conservative Party has been insisting throughout the election campaign that the fundamentals of the economy are strong. But in the past 24 hours a new reality has set in.

Mr. Flaherty, who is expected to be in Washington Friday at an emergency G7 session of finance ministers, had been preparing to make the announcement of a banking plan Thursday, but after word leaked Wednesday night, the plans were delayed, sources say, in an illustration of how important it is for the government to try to control the message.

Pressure from the banks is growing, with executives arguing their sector needs federal help immediately to ease their credit pressure.

Banks want it right now but the Harper government has to reconcile calls for immediate assistance with its insistence the Canadian banking system requires no extraordinary measures.

Financial stocks were battered Thursday. Toronto-based insurers Sun Life Financial and Manulife Financial fell 13.96 per cent and 11.35 per cent, respectively. Bank of Montreal dropped 4.59 per cent, Toronto-Dominion Bank 6.42 per cent, Bank of Nova Scotia 7.15 per cent, and both Royal Bank of Canada and Canadian Imperial Bank of Commerce fell 9.01 per cent. Comparatively, the S&P/TSX composite fell 4.54 per cent.(emphasis added)

"In the US right now, let's be clear, they are bailing out the banking system because of misregulation. We are not doing that in Canada," he said, dismissing accusations his Conservative government has not done enough to bolster Canada's slowing economy.

Yet here he was on Thursday, confirming the need to assist the banks. We're assisting, but we're not "bailing out," he said. A disingenuous characterization in any event. We're not bailing out banks yet we're clearly stepping in to help. The distinction is a matter of degree. Steve repeats it 3 times here, apparently to make people think we're not really having to do much at all with our banks:

“To be very clear: there is no question, no possibility of bailing out the banks and the banks aren't seeking to be bailed out and the government won't be bailing them out,” he said. He added, however, that the banks need help to cope with the “growing tightness in world credit markets” now. “We're doing that to make sure there's money available for routine loans [for] small business, for car loans, for mortgages.”(emphasis added)

See how careful he is with his words? He is concerned with the perception that he's flip-flopped. That he's been exposed as having been wrong. Because suddenly, the government is assuming bank mortgages. This certainly flies in the face of the representations that Mr. Harper has made to us during this election campaign.

And just whose brilliant idea was it to have an election in the middle of this meltdown anyway?